Cruz v. FXDirectDealer, LLC
855 F. Supp. 2d 89
S.D.N.Y.2012Background
- FXDD moved to dismiss an amended class action alleging a RICO fraud scheme in the off-exchange Forex market.
- Plaintiff Hugo Cruz claimed FXDD manipulated trades/pricing via its platform and software, harming him and class members.
- Plaintiff alleged an association-in-fact FXDD Fraud Enterprise and predicate acts of mail and wire fraud.
- Plaintiff attached the Customer Agreement and demo-accounts disclosures as context for alleged misrepresentations.
- The court addressed RICO elements, enterprise distinctness, standing, and statute-of-limitations/related state-law claims; it ultimately granted dismissal on all counts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether predicate acts are sufficiently pled under Rule 9(b). | Cruz contends mail and wire fraud predicates were pled. | FXDD contends acts are not pled with specificity as required by 9(b). | Predicate acts inadequate under Rule 9(b); not pled with specificity. |
| Whether the FXDD Fraud Enterprise is sufficiently distinct from the pattern. | FXDD and its affiliates/partners form an association-in-fact. | Enterprise is not distinct from the RICO person or the pattern. | Enterprise not sufficiently distinct; RICO claim dismissed. |
| RICO standing requirement—injury and causation. | Plaintiff alleges loss from the scheme. | Plaintiff failed to show how losses flowed from the RICO violation. | RICO standing not established; claim dismissed. |
| Whether NY Gen. Bus. Law §§ 349 and 350 apply given lack of in-state activity. | Deceptive practices occurred in transactions affecting Plaintiff. | No in-state acts; lack of standing. | Counts II and III dismissed for lack of standing. |
| Breach of contract and implied covenant claims survive given contract terms. | FXDD breached live-orders, pricing accuracy, and manipulation prohibitions. | Contract expressly disclaims liability and discloses risk. | Counts Four and Five dismissed because contract terms contradicted the claims and covenant is duplicative. |
Key Cases Cited
- Boyle v. United States, 556 U.S. 938 (2009) (two-prong enterprise distinctness requirements for RICO association-in-fact)
- Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339 (2d Cir.1994) (enterprise distinct from pattern; person distinct from enterprise)
- Turkette, 452 U.S. 576 (1981) (definition of association-in-fact enterprise)
- Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001) (distinction between enterprise and person; corporate plaintiffs)
- First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159 (2d Cir.2004) (enterprise and pattern must be distinct; pleading requirements)
- In re Sumitomo Copper Litig., 995 F.Supp.451 (S.D.N.Y.1998) (Rule 9(b) pleading in RICO context; mail/wire fraud specifics)
- S.Q.K.F.C., Inc. v. Bell Atl. TriCon Leasing Corp., 84 F.3d 629 (2d Cir.1996) (pleading elements for mail and wire fraud predicate acts)
- Neder v. United States, 527 U.S. 1 (1999) (materiality in mail and wire fraud; predicate acts)
- First Interregional Advisors Corp. v. Wolff, 956 F.Supp. 480 (S.D.N.Y.1997) (Rule 9(b) pleading standard in RICO context)
- Moore v. PaineWebber, Inc., 189 F.3d 165 (2d Cir.1999) (pleading details for misrepresentations)